Trading Places, by Clyde V. Prestowitz, Jr.

Trading Places: How We Allowed Japan to Take the Lead.
by Clyde V. Prestowitz, Jr.Basic Books. 365 pp. $19.95.

When Trading Places was published last fall, the environment for the success of its ominous message about the Japanese must have seemed far from hospitable. Richard Gephardt, pushing protectionism, had been booed off the political stage by the shouts and jeers of the media, and each of the two big parties had then nominated an avowed free-trader as its presidential candidate. The more vehement of them, George Bush, went on to win in November. The trade issue appeared to have been settled, and Trading Places might confidently have been shoved onto the remainder shelves.

And yet, Trading Places has become an Important Washington Book. In trade as in so many other areas, the early rumblings from the Bush administration have sounded distinctly different from the noises heard during the campaign. Even before he was sworn in, George Bush sent a letter to Senator John C. Danforth of Missouri, promising not to drop the restrictions on imports of steel. The new President seems to have happily accommodated himself to all the protectionist measures imposed by his predecessor—the restrictions on cars, trucks, and motorcycles, on semiconductors, steel, and food—as well as to the new procedural apparatus erected during the Reagan years to monitor and harass foreign products. The Secretary of the Treasury, Nicholas Brady, has publicly ruminated over governmental measures to correct the alleged short-sightedness of American business: federal assistance to commercial research and development, amendments to the antitrust laws to permit domestic industrial consortia, changes in the tax code to discourage those activities condemned by the authorities as speculative and to promote those deemed productive. The Secretary of Commerce, Robert Mosbacher, is advocating a “holistic” approach to trade that would guarantee American business a specified quota of the Japanese domestic market.

The people who will benefit financially from these policies are, naturally, easily convinced that they are in the public interest. Clyde Prestowitz has set out to persuade everyone else. In him, the cause of “managed trade,” or “industrial policy,” or “the level playing field,” or whatever euphemism is preferred at the moment for state control of the flow of imports and exports, has at last found a plausible champion. He has lived in Japan and speaks Japanese. He has worked as a consultant and a corporate director for many firms that have tried to compete with the Japanese. During seven years as Counselor for Japan Affairs to the Secretary of Commerce, he conducted innumerable negotiations with the Japanese, culminating in the semiconductor cartel of 1986. And unlike such past industrial-policy celebrities as Robert Reich and Lester Thurow, Prestowitz has not seized on the apparent commercial successes of Japan as a justification for his views: his fear of Japan is sincere, and not merely a convenient argument for statist ideology.

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Granted, little of what Prestowitz has to say is original. But its very familiarity adds to its effectiveness. Who does not “know” that American industry is being pulverized by rivals bringing to bear the huge power of highly organized industrial combinations? Or that the United States is hampered by its chronic indiscipline and its inability to keep secrets? Or that the federal government fails to remedy the situation because its authority is too fragmented and too susceptible to pressure? Precisely because we have already read the arguments in a dozen books and a thousand articles, what Prestowitz says makes intuitive sense.

His central thesis—that “the notion of individualism, so sacred to the United States, is also its fatal flaw”—is the most familiar of all: Trading Places bears more than a coincidental resemblance to The Ugly American and the fretful polemics of the cold war, or indeed, to the long tradition of American worry-wartism, stretching through the 1930’s all the way back to the classics of Yellow Peril alarmism. They all solemnly intoned that the United States was losing ground to a far-sighted rival: Russia or Germany or China or—even then!—Japan, capable of harmonizing millions of discordant human wills into one single menacing purpose. The fears of American tract writers remain constant, even if the identity of the adversary preparing to profit from them keeps changing.

Nor are Prestowitz’s policy prescriptions novel. They are pretty much the same as those favored by Louis XIV’s finance minister, Colbert: incentives to export, disincentives to import, and public assistance to industries deemed strategic. Specifically, he suggests that the United States admit that the Japanese market is impenetrable under normal circumstances, drop its demands for alterations in Japan’s trade laws, and instead negotiate for a fixed proportion of its market, industry by industry.

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If, however, we have heard these recommendations before, we have not heard them from a writer so frank about their consequences. Trading Places bravely faces up to the full implications of mercantilist economics. When, more than a decade ago, Americans first began to be told that they ought to emulate the Japanese, Japan was conventionally represented as a paragon of industrial democracy. The Japanese sought harmony, while Americans preferred confrontation. Japanese managers accepted low salaries, ate in the same cafeterias as their workers, and parked in the same lot. Workers were guaranteed lifetime employment, and in return shared their intelligence as well as their sweat with their firm. They even sang the company anthem in the morning.

Prestowitz indulges in no such cant. He does not disguise the harshness of Japanese society: “Many incidents are reported of groups of children—sometimes led by a teacher—harassing, at times even brutally, those who seem different for one reason or another.” Or its inequality: “The concept of hierarchy is so deeply ingrained that it is literally impossible to speak Japanese without first establishing a hierarchy. . . . Verbs, adjective endings, and entire forms of expression change depending on whether the person addressed is higher, equal, or lower in the hierarchy than the speaker.”

Similarly, when Prestowitz prescribes a dose of neomercantilism for the United States, he makes no sunny promises. Again unlike other advocates of industrial policy, Prestowitz does not deny that free markets create higher standards of living than directed markets. His ideal, however, is not consumption but power, and “power demands capabilities in certain industries and key technologies.” Achieving and preserving those capabilities will probably require at least temporary reductions in the standard of living of many Americans, because national power is not perfectly compatible with the welfare of the individual: “While Japan is rich, the Japanese are not.” And, equally, what is good for the United States may not be pleasant for individual Americans.

Americans may want cheaper products—but the United States needs a semiconductor industry. Americans may want their pension funds to earn the highest possible rate of return—but the United States needs more patient capital. Americans may want to strike out on their own and found their own businesses—but the United States needs huge industrial enterprises that cooperate against foreign competition. Americans may want to sell their property to the highest bidder—but the United States needs to retain strategic assets in domestic hands.

How, though, are we to recognize these strategic assets? Prestowitz never says. We are not offered criteria, only examples, and the assertion that such industries somehow “contribute more than others, in terms not just of national security but also of pure economic welfare.” In other words, America’s survival as a superpower is at stake, and that surely overrides the desire of the individual to buy a second television set, does it not?

Well, does it? In Prestowitz’s book, an extended transvaluation of values takes place, according to which it is American consumers who are the selfish special interests, and the demands of America’s corporations that represent the public good. Yet that the interests of Bethlehem Steel and the interests of the people of the United States are one and the same is never proved by Prestowitz; no real attempt to prove it is even begun. Instead, as in most of the new literature of protection, his case relies heavily on emotional manipulation. The collapse of proud old American firms before Oriental guile is vividly described, while Japan’s new economic power is made fearsome by harrowing example after example. If the American government ever treats its trading partners unfairly, we do not hear of it; this is no time for petty evenhandedness. Thus, it seems, does protectionism ever drape itself in a bunting of patriotism.

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About the Author

David Frum is a fellow at the American Enterprise Institute and a columnist for National Review Online.